Source: PaxForex Premium Analytics Portal, Fundamental Insight
One of the significant challenges Johnson & Johnson has faced in recent years is its involvement in talc lawsuits. This legal issue has been a major factor in the 9% decline in the company's share price over the past three years, as the legal uncertainties have cast a long shadow over the business.
Johnson & Johnson has allocated billions of dollars to settle lawsuits claiming that its talc-based products caused cancer. Despite these efforts, the company has not been able to fully resolve the matter. However, J&J is optimistic that a resolution is near.
During Johnson & Johnson's recent earnings call, Chief Financial Officer Joseph Wolk provided an update on the talc litigation. He mentioned that claimants are currently voting on the company's latest proposed settlement, with voting open until July 26. It will take several weeks to tally the votes and assess the support for the proposal.
The proposed settlement involves Johnson & Johnson committing to pay $8 billion over 25 years, with a present value of $6.5 billion. This settlement aims to resolve 99.75% of the outstanding talc lawsuits. The company is confident in achieving the necessary 75% approval from claimants to proceed with the plan. Additionally, Wolk noted that J&J has settled 95% of payments related to mesothelioma claims.
Previously, Johnson & Johnson attempted to resolve these lawsuits through a bankruptcy strategy involving its subsidiary, LTL Management. These attempts were unsuccessful. The difference this time is that the company is allowing claimants to vote on the proposed settlement. If sufficient support is garnered, it could make a third attempt at resolving the issue through bankruptcy successful.
Johnson & Johnson has already earmarked $11 billion to address the settlements, suggesting that a significant portion of the financial impact is likely already reflected in the stock's current valuation.
However, there remains the risk that a few high-profile lawsuits could impose substantial damages on the company. So far, such instances have been relatively rare. A notable example was a Missouri court's $2.1 billion award to 22 women who claimed that the company's talc products caused them to develop ovarian cancer.
Settling over 95% of cases can be both promising and potentially misleading. With tens of thousands of claimants involved, this high percentage might not fully reassure investors. A few particularly severe cases with substantial potential payouts could result in additional billions in expenses not covered by the company's current projections.
Despite Johnson & Johnson's optimism about nearing a resolution, uncertainty remains regarding the complete financial impact of these talc lawsuits. Ongoing legal disputes are a familiar challenge for the company and pose risks for investors. The substantial legal costs could limit resources available for growth initiatives or dividend increases.
Until the talc issue is definitively resolved, investors might consider exploring other dividend stocks for more stable returns. The current risks associated with Johnson & Johnson make it a less attractive option for those seeking reliable income.
As long as the price is above 155.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 160.71
- Take Profit 1: 165.00
- Take Profit 2: 170.00
Alternative scenario:
If the level of 155.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 155.00
- Take Profit 1: 150.00
- Take-profit 2: 145.00
